ACCC throws a spanner in the works for Louis Dreyfus in its bid for Namoi Cotton

ACCC throws a spanner in the works for Louis Dreyfus in its bid for Namoi Cotton

Photo: Namoi Cotton, via Facebook

The takeover plans of Singapore’s Louis Dreyfus Company (LDC) for Australia’s largest cotton processor Namoi Cotton (ASX: NAM) have been dealt a blow after the competition regulator raised concerns about a potential acquisition.

The Australian Competition and Consumer Commission (ACCC) has outlined preliminary concerns about LDC’s takeover plans, highlighting that it is likely to hit producers seeking cotton ginning services in the north of Western Australia and Northern Territory.

The ACCC is also considering whether the proposed takeover may substantially lessen competition in the marketing of cotton lint and seed.

The concerns are currently moot points as rival Singaporean agri-business Olam Agri Holdings remains in the box seat after outbidding LDC earlier this month with a $144.8 million offer for Namoi Cotton.

However, the ACCC’s concerns throw a spanner in the works should LDC ultimately win the bidding war for Namoi Cotton. The company has already discussed the potential disposal of assets that have raised the competition regulator's concerns.

LDC, a long-term partner of Namoi Cotton which initially made its takeover play late last year, is already a major shareholder with a 16.99 per cent stake in the Australian cotton group.

The ACCC notes that LDC and Namoi both supply cotton ginning, cotton lint classing, logistics and warehousing services in Australia, while they also are buyers and marketers of cotton lint and cottonseed.

LDC operates three cotton gins - at Emerald and Dalby in Queensland and Moree in NSW – while also supplying cotton warehousing and logistics services in Dalby, Port of Brisbane and Moree.

Namoi operates 10 cotton gins at nine sites across NSW and Queensland, and it also has a joint venture with the Wathagar Ginning Company, which has a cotton gin located in the Gwydir Valley of NSW.

The ACCC says its competition concerns for WA and NT are centred on two new cotton gins located in Kununurra and Katherine.

Namoi has been contracted to build and operate the Kununurra cotton gin and is a minority shareholder of the gin’s holding company, while LDC has entered into a joint venture for the management and operation of the Katherine cotton gin, which is due to be commissioned in mid-2024.

A takeover would give LDC significant control of the processing market in these regions.

“If this acquisition proceeds, LDC will be involved in operating the only two cotton gins in the north of Western Australia and Northern Territory,” says ACCC Commissioner Stephen Ridgeway.

“We are concerned it would result in LDC being able to reduce competition between these two cotton gins, which may result in higher prices or reduced service levels for ginning services.

“Growers benefit from competition between cotton gins, and once both are operational, the Katherine gin will be by far the closest competitor to the Kununurra gin.”

The ACCC is also concerned that a takeover by LDC would hit competition for the supply of cotton lint classing services in Australia. Classing occurs at the end of the cotton ginning process when a sample is collected from each bale of cotton lint and sent for grading. LDC also holds a 20 per cent interest in ProClass, which supplies cotton lint classing services.

“The acquisition would result in LDC having ownership interests in two providers of cotton lint classing services, ProClass and Australian Classing Services, which together class more than 80 per cent of all cotton lint in Australia,” says Ridgeway.

The ACCC is also investigating whether a takeover of Namoi Cotton could affect access by rival merchants to cotton lint, and potentially increase prices for warehousing of cotton ready for export out of Port of Brisbane.

The ACCC says it continues to consult with LDC on a draft divestment proposal to mitigate any competition concerns.

Meanwhile, Olam Agri dispatched its bidder’s statement to Namoi Cotton shareholders today. The LDC rival is offering 70c cash per Namoi shares.

This compares with LDC’s latest offer of 61c-per-share which comprises a cash consideration of 60c plus a 1c special dividend declared on 17 April.

The recently revised Olam Agri bid has been backed by Samuel Terry Asset Management (as trustee for Samuel Terry Absolute Return Group), which holds a 25 per cent stake in Namoi.

Shareholders had been expecting the bidding war to continue between the Singapore giants, and last week pushed Namoi Cotton shares to a high of 77c. The shares were 4c lower today at 71c each by 2.17pm (AEST).

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